Equity Research Asia Pacific | Australia Commodities Notes High iron ore prices needs stronger steel prices to be sustained even with the weaker supply Diversified Metals & Mining | Sector Review We now suggest iron ore could remain in the US$125-US$150/t range in 2021 fluctuating with seasonal demand factors; and US$110-US$130/t in 2022, on the proviso that China steel rebar price rises to at least Rmb4200/t. With Vale downgrading 2021 iron ore production guidance, and Rio Tinto under pressure from the Juukan Gorge scandal, we’ve updated our High Case Iron Ore Scenario published with our Bulks Forecasts on 30 September. We consider the scenario’s China steel demand growth of 2% in 2021 is more in-line with our China economists’ upbeat view of % YoY growth in 2021 real estate investment than our base case of flat China steel demand. Cutting 26Mt & 25Mt from 2021& 2022 supply due to Vale and RIO delivers deficits of almost 50Mt in 2021 and 36Mt in 2022, on top of weaker port inventories than last year. But stronger prices need higher China steel prices to be sustainable and prevent steel mills cutting back on losses. Figure 1: China’s port stocks and iron ore price
Research Analysts Matthew Hope 61 2 8205 4669 matthew.******@credit- 180 150 iron ore price (62% Fines CFR) 160 140 140 130 45 port volume (Mt) 120 120 100 110 80 100 60 90 40 80 20 70 Jun 18 Aug 18 Oct 18 Dec 18 Feb 19 Apr 19 Jun 19 Aug 19 Oct 19 Dec 19 Feb 20 Apr 20 Jun 20 Aug 20 Oct 20 0 60 Pellet Lump Price (RHS) 45 Port iron ore fines Concentrate Source: Mysteel, Fastmarkets, Credit Suisse estimates Our original expectation of the China–Australia dispute settling in the new year and a resumption of the coal trade lifting Australian met coal prices now seems less likely, with the row worsening over the last week. It now seems that China will attempt to meet the coking coal supply gap with domestic coal, together with any other im